Directors' Duties Under Cyprus Law: What They Require in Practice

A director of a Cyprus company is in a position of trust, and the law treats that position seriously whether or not the director thinks of himself as a fiduciary at all. Most breaches are not dishonest. They are ordinary commercial decisions taken by someone who had an interest on both sides of the transaction and did not stop to say so.

Where the duties come from, and to whom they are owed

Directors' duties in Cyprus derive from common law and equity, and sit alongside the requirements of the Companies Law, Cap. 113 and the company's own memorandum and articles of association. They are not exhaustively written down in one place, which is why directors are often unaware of their scope until a dispute makes it necessary to establish it.

The duties are owed to the company. That single sentence resolves most of the difficult cases. A director is not appointed to serve the shareholder who nominated him, the parent company that controls the group, or the bank that required his appointment as a condition of lending. A nominee director owes the same duties as any other director, and an instruction from the person who appointed him is not a defence to having followed it.

The duties themselves

To act in good faith in what the director considers to be the company's interests

The test is what the director honestly considered to be in the company's interests, not what a court would have decided in his place. That is a real protection for commercial judgment, and it has a condition attached: it is far easier to establish what a director honestly considered when the consideration was recorded at the time.

To exercise powers for a proper purpose

A power conferred for one purpose may not be used for another, even where the director believes the result is beneficial. Where a decision is driven by several purposes, some proper and some not, the duty is broken if the improper purpose influenced the decision.

Not to fetter the exercise of discretion

A director must remain free to exercise independent judgment on each decision as it arises. Agreeing in advance to vote a particular way, or binding the board to a future course, cuts across that freedom.

To act within the company's constitution

The articles set the limits of the board's authority. Decisions taken outside those limits are exposed whatever their commercial merit, and the articles are frequently the first document read when a decision is challenged.

To avoid conflicts between duty and interest

A fiduciary must not place himself in a position where his personal interest conflicts, or may conflict, with his duty to the company. The rule is prophylactic: it is not answered by showing that the transaction was in fact fair, because the law does not permit a fiduciary to put himself in a compromised position and then deny that his judgment was affected.

Not to profit from the position

A director must not take a benefit conferred because of his office, or because of something done or not done in that office, and must account for any benefit obtained through the misuse of the company's property, information or opportunities. A business opportunity that reaches a director through the company belongs to the company, even if the company would have been unable to take it.

Where breaches actually arise

In practice, the recurring situations are narrow and identifiable:

• Transactions between the company and another business the director owns or controls, on terms nobody independent tested.
• Loans and payments to a director, or to a person connected with a director, recorded after the fact or not at all.
• Corporate opportunities taken personally, or diverted to another company in which the director has an interest.
• Group arrangements where a subsidiary is asked to guarantee, lend or transfer value for the benefit of the group as a whole, without any separate consideration of the subsidiary's own interests.

None of these is automatically unlawful. Each of them requires the interest to be declared, the decision to be taken by those who are free of it, and the reasoning to be recorded before the transaction, not after it is questioned.

What follows a breach

The claim belongs to the company, which is why breaches are often raised only after control of the company changes hands or a liquidator is appointed. The remedies available include:

• A declaration or an order restraining the exercise of the powers in question.
• Damages or equitable compensation for the loss the company has suffered.
• An account of profits, requiring the director to give up the gain made through the breach even where the company itself lost nothing.
• Proprietary relief over property or money received, where it can still be identified.

Relief may run against a third party who knowingly participated in or received the benefit of the breach, which is why counterparties to related party transactions are not always as remote from the dispute as they assume.

The record is what decides it

Almost every case of this kind is argued on documents created before anyone contemplated a dispute: the board minutes, the declaration of interest, the valuation obtained or not obtained, and the correspondence around the decision.

The practical discipline is short: declare the interest to the board in writing, minute the declaration, abstain where the articles require it, obtain independent input on value where value is in issue, and keep the file.

When the company is in financial difficulty

The position changes as the company approaches insolvency, because the interests the directors must have in mind shift towards the creditors. That is the point at which the personal exposure of directors is greatest.

What to send us

The memorandum and articles, the board minutes and resolutions covering the decision in question, the register of directors' interests if one is kept, and the underlying documents for the transaction. If a dispute is live, send the correspondence and any demand received. Where a director is being asked to approve something that touches his own interests, the time to raise it is before the resolution is passed.

Directors' duties sit within our corporate and commercial practice, and disputes arising from them within our litigation and arbitration practice. The position once the company is insolvent or approaching insolvency is covered in Directors' Duties When a Cyprus Company Is Insolvent. Creditors considering action against a company are dealt with in Recovering a Debt From a Cyprus Company That Will Not Pay.

This article is for general information only and does not constitute legal advice. Laws and their application can change, and individual circumstances differ. For advice on your own matter, contact Klitos Platis at klitos@kleanthousplatis.com or telephone +357 22 680 330.

Klitos Platis

Advocate, Partner

Kleanthous & Platis LLC, Nicosia · Revised 4 August 2026